CH18: Cost behavior & CVP

Question 1

what is CVP

Answer 1

cost volume profit analysis

Question 2

fixed costs

Answer 2

costs that dont change even when volume changes

(fixed cost per unit however increase/decrease depending on volume)

Question 3

variable costs

Answer 3

costs that change in proportion to changes in volume

(VC per unit stays the same however even when volume increases)
(this just changes total VC)

Question 4

Mixed costs

Answer 4

costs that include both variable and fixed costs

Question 5

step wise costs

Answer 5

costs with a step pattern but remain the same in a relevant range

Question 6

which cost has costs even when there are 0 units produced

Answer 6

fixed costs

Question 7

examples of fixed costs

Answer 7

-depreciation
-rent
-taxes
-supervisor salaries
-insurance

Question 8

examples of Variable costs

Answer 8

-direct mats
-hourly wages
-packaging
-direct labor

Question 9

examples of mixed costs

Answer 9

-salesmen salary + commission
-factory utilities

Question 10

how do you find total costs (cost equation)

Answer 10

fixed costs + variable costs

Question 11

what are the 3 methods to find FC/VC

Answer 11

-scattergram
-high low method
-regression

Question 12

scatter diagram

Answer 12

scatterplot graph of unit volume and cost data

Question 13

what does the high low method do

Answer 13

uses highest and lowest volume levals to estimate a cost equation

Question 14

high low method formula

Answer 14

cost at high vol-cost at low vol
/
high vol-low vol

  =variable cost per unit

Question 15

formula for finding fixed costs using high low

Answer 15

total costs (high point)= fixed costs + (variable cost x #of units (high point)

Question 16

contribution margin

Answer 16

sales - variable costs

Question 17

contribution margin per unit

Answer 17

selling price per unit - variable cost per unit

amt by which selling price exceeds variable costs

Question 18

contribution margin ratio

Answer 18

contribution margin per unit / selling price per unit

% of a unit’s selling price that exceeds total unit variable cost

Question 19

how to find fixed costs using just income

Answer 19

contributon margin- income= fixed costs

Question 20

how to create a contributon margin income statement

Answer 20

Sales (units x sellingprice)
-variable costs (units x variable cost)
=contribution margin
-fixed costs
=income

Question 21

what is break even

Answer 21

sales at the leval which total sales=total costs

results in 0 income

Question 22

what are the 3 methods to find break even

Answer 22

-formula method
-contribution margin income statement
-CVP chart (not important)

Question 23

Formula for break even in units

Answer 23

fixed costs/ contribution margin per unit

Question 24

formula for break even in dollars

Answer 24

fixed costs/ contribution margin ratio

Question 25

what happens to BE
1- sales per unit increase
2-sales per unit decreases

Answer 25

1- BE decreases
2-BE increases

Question 26

what happens to BE
-variable cost per unit increase
-variable cost per unit decrease

Answer 26

-BE increases
-BE decreases

Question 27

what happens to BE
-fixed costs increase
-fixed costs decrease

Answer 27

-BE increases
-BE decreases

Question 28

margin of safety definition

Answer 28

amount of sales that can drop before business incurrs a loss

Question 29

margin of saftey in dollars

Answer 29

expected sales- break even sales

Question 30

margin of saftey in %

Answer 30

expected sales- BE sales
/
expected sales

Question 31

how to find break even sales

Answer 31

break even units x selling price per unit

Question 32

how to find units to be sold to get target income

Answer 32

fixed costs + target income
/
contribution margin per unit

Question 33

how to find dollars to be sold to get target income

Answer 33

fixed costs + target income
/
contribution margin ratio